Proposal Would Put New State Workers on 401(k) Retirement Plan; Phase Out Pensions

Thursday

Jan 24, 2013 at 2:46 PM

Program for state's public employees would end for new hires next January.

By LLOYD DUNKELBERGERLEDGER TALLAHASSEE Bureau

TALLAHASSEE | The end of Florida's traditional pension plan for government workers may be in sight.

Under a bill state lawmakers are considering, the popular pension plan for state workers, teachers, firefighters and other public employees would end for new hires next January. Instead, new workers would be put into a 401(k)-type plan after next Jan. 1.

If approved by lawmakers later this spring, the bill would eventually phase out the current $127 billion state pension fund — which now provides retirement for nearly 600,000 state, school and county employees — in a process that could take decades.

Currently, public employees have the option of joining the traditional pension fund or opting for a 401(k)-type plan.

Moving public employees into an "investment plan" — similar to 401(k) plans used by private businesses — is a top priority for House Speaker Will Weatherford, R-Wesley Chapel, increasing the chances that the measure could become law.

The change could eventually save Florida millions of dollars annually and achieve a policy goal of state leaders who argue that government benefits should be more like those for the private sector workers whose taxes pay for them.

But it is certain to face a bitter fight from public employees, still smarting from the state's decision two years ago to require government workers to pay 3 percent of their salaries toward their retirement costs.

House Government Operations Chairman Jason Brodeur, R-Sanford, stressed that the House proposal would not affect current public employees in the traditional pension fund or workers hired before Jan. 1.

"It doesn't affect anyone who participates in the system today," he said. "Whatever you have you can keep even if you're an employee 30 years from now."

Not all of the details of the bill have been finalized, including a plan to revamp the way future employees earn disability benefits.

"It's a work in progress," said Brodeur, whose committee heard the bill Thursday.

But some lawmakers and unions representing firefighters, police officers, state workers, university employees and teachers questioned the need to end the pension plan for new workers, noting Florida's pension program is considered one of the strongest plans in the country with the projected ability to fund some 87 percent of its future claims.

"What exactly are we trying to fix and what is the problem?" asked Rep. Irv Slosberg, D-Boca Raton.

Slosberg noted that the state could face an immediate cost in the next few years totaling more than a half billion dollars for the pension if all new workers were forced into the 401(k)-type plan rather than the pension fund.

As of last June, about 517,000 public workers were in the traditional pension fund and 105,000 were in the alternative investment plan, according to the Department of Management Services.

About one out of every four new workers opts for the investment plan over the traditional pension plan, Brodeur said. One of the reasons is that new employees are vested — or entitled to their retirement benefits — after one year of service, while vesting in the pension plan takes eight years.

Workers can also transfer their retirement savings in the investment plan if they leave their government jobs for the private sector.

Previous studies have shown closing the pension fund to new employees would reduce future contributions to the fund — from the government employers as well as the employees — although the retirement liability would remain for the workers still covered by the pension.

Brodeur said the House is conducting an actuarial study to determine the cost and the report should be available before lawmakers begin their annual legislative session in March.

He said the cost would be weighed in the decision to move forward with the bill, while arguing that the long-term benefits may trump the short term financial challenge.

Brodeur likened the change to "turning an aircraft carrier," arguing that phasing out the pension plan would remove the potential risk for taxpayers if the fund was unable to pay all of the workers' retirement benefits in the future.

Private businesses have been switching from traditional, or "defined benefit" pensions that offer a guaranteed monthly payment — typically based on salary and years of service — for more than 20 years. But governments have been slower to change.

Lisa Henning, a lobbyist for the Florida State Fraternal Order of Police, said the pension plan "gives law enforcement officers a sense of security that no matter what happens to them that day, they know that their family is going to be taken care of."

"You're taking away a great deal of that security," she said.

A companion bill has not yet been filed in the Senate.

Sen. Jeremy Ring, D-Margate, chairman of the Governmental Oversight and Accountability Committee, said his panel is considering legislation aimed at reforming local pension funds run by some Florida cities and special districts.

The ruling also eliminated a cost-of-living adjustment for retirement benefits earned after July 2011.

And the pension talks comes as legislative leaders — including Senate President Don Gaetz, R-Niceville — have indicated their support for giving state workers a pay increase, which would be the first general raise for the workers since 2006. Gov. Rick Scott has called for a $2,500 a year raise for classroom teachers.

Public employees have complained that the 3 percent pension payment started in 2011 represented a pay cut while most have not received a raise in years because of the Great Recession and the drop in government revenue.